Electronic components distributors are stepping up efforts to smooth the flow of products through the supply chain as customers scramble to stock up on semiconductors, capacitors, and other high-tech items in the wake of Japan’s recent natural disasters and ensuing nuclear crisis.
Industry watchers say the full effect of the 8.9-magnitude earthquake and subsequent tsunami that hit the island nation on March 11 is uncertain, but note that product shortages and a rise in counterfeit components are immediate supply-chain concerns.
Paul Romano, chief operating officer at Fusion Trade, said price increases of 15% to 20% on various memory components had caused a surge in demand among production customers as early as just a few days after the disaster.
“What this is forcing, of course, is that users of these products are scrambling to assure short-term supply,” Romano says. “Nobody knows what the long-term impact is. And this is all occurring on top of an existing shortage [of certain components] following the ’08 economic recession.”
Japan manufactures about 40% of the world’s NAND flash and roughly 15% of the world’s dynamic random access memory (DRAM), according to Jim Handy of Objective Analysis. Even a two-week shutdown in plants that manufacture these items would remove a sizable share of each from production, he told Electronic Design recently.
The situation is causing distributors such as Avnet Electronics Marketing to get even closer to suppliers and customers in an effort to smooth the fears associated with a disrupted supply chain.
“We are really aggressively working their inventory pipelines [and] their lead times to try and buffer our customers—by considering alternative sources and bringing in inventory if necessary,” Harley Feldberg, corporate vice president and president of Avnet Electronics Marketing/global said in a mid-March interview.
Feldberg emphasizes that it is difficult to assess the impact of the situation until the problems at Japan’s Fukushima Daiichi nuclear facility are resolved. As of early April , authorities were still trying to restore order at the facility, which was severely damaged by the earthquake and tsunami.
“[My comments] are contingent on the hope and belief that that situation will come under control in the near future,” Feldberg said.
Avnet has an additional concern in the region, as the company has a facility in Tokyo. None of its employees there were hurt and the facility wa s in good shape following the disasters, Feldberg said.
TTI’s Michael Knight agrees that with so much uncertainty surrounding the situation, customers are instinctively trying to protect their supply chains. And that’s where a distributor’s role must kick into full gear.
“A lot of them are running around now trying to get their hands on as much product as possible,” Knight said in mid-March. “It’s like squirrels in early winter—to the point where some squirrels are trying to take other squirrels’ nuts.”
TTI has seen customers that normally buy 10,000 pieces a month try to buy up all 100,000 pieces the distributor may have available, as one example.
“In the absence of certainty, it’s pretty logical behavior,” Knight says. “But if we don’t get a handle on it and start allocating product that’s in danger, we’ll have a terrific March, but a pathetic April, May, and June.”
Knight says the chief concern is figuring out how to cover customers’ needs and then identifying how much extra TTI has available to take advantage of short-term, one-time opportunities to sell to new customers.
“Because there’s a lot of that going on now, too,” he says.
Knight also notes a second layer of concern: Japan’s production of aluminums, ceramics, and resins that go into various electronic components. He points to resins in particular, noting that many of the resins that go into printed-circuit boards (PCBs) come from Japan.
“Most boards are [fabricated] in China, but if the resins are coming out of Japan, then everything’s not okay,” Knight explains. “It’s that second layer that is harder to sort out that is where we’re going to get a surprise bite.”
Rise In Counterfeits
Distributors are also concerned about a rise in counterfeit products flooding the market as a result of a supply-chain disruption. Counterfeiting is already a major industry concern, and any supply shortages represent an increased opportunity for counterfeiters to get their product into the market (see “Prepare Your Counterattack Against Counterfeit Parts”).
“When there’s a significant demand in the market for products, people tend to go outside their normal source of supply,” says Romano, pointing to Fusion Trade’s efforts to address quality issues through its state-of-the-art anti-counterfeiting lab.
“[Customers] need to make sure they’re partnering with folks that have that type of technology and knowledge of what’s going on. The counterfeiters are looking for opportunity, and here’s an opportunity. So everyone needs to be aware and keep their eyes open,” Romano says.
Like other distributors, Fusion Trade is keeping its ears as close to the ground as possible so it can react quickly. Fusion Trade’s Asian operations include offices in Singapore and Hong Kong.
TTI has no footprint in Japan, but it represents 10 suppliers headquartered in Japan, with another half-dozen or so that source items from Japan.
“The whole world is going to figure out just how dependent they are on Japan for electronics when this is all said and done,” Knight says.